2 Key Ways to Shop for a Defensive Stock in a Turbulent Market

Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) or Park Lawn Corp. (TSX:PLC)? Finding a defensive stock isn’t always easy.

A confluence of market stressors is turning investors toward defensive stocks at the moment. With trade tensions, low precious metals prices, low oil prices, and a rising cost of living, the climate on the investment front is one of looming uncertainty. Indeed, the final week of May showed just how widespread an infection of fear can spread in the TSX, and how quickly. So just how does one spot a defensive stock right now?

Find a “Goldilocks” bank

Having witnessed the market bloodbath that was the final week of May, it might not behoove an investor seeking defensiveness in financials to put too much faith in any single Canadian banking stock at the moment. Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) is arguably the least geographically diversified bank, arguably making for a pick for stalwart domestic economy bulls only.

Then we have Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), which has the opposite problem (or benefit, depending on one’s stance), of being the most exposed to foreign markets. Relatively unchanged at the time of writing, investors can now go back to debating whether or not Scotiabank’s dividend yield of 4.84% overrides negative returns over the last 12 months to make for a rewarding stock.

The issue here is that while some Canadian banks are too exposed to the domestic market, others are too exposed to international ones. An individual investor is then forced to choose which type of overexposure is the best (or worst, as the case may be). The trick, then is to find something in the middle – in other words, a diversified “Goldilocks” bank that mixes domestic and international exposure in more or less equal measure.

Separate the nice-to-haves from the must-haves

High cost items will likely be among the first to suffer should Canada find itself in a recession; however, with so much uncertainty in the markets, the threat of a downturn is almost as bad as the real thing.

That’s why, with rising overheads and a plunging share price, luxury retail stocks like Canada Goose (TSX:GOOS)(NYSE:GOOS) could find themselves in a bad position. With retail suffering in general as the populace tightens its belts, high-cost luxury items such as the cold weather apparel produced and sold by Canada Goose may find itself going out of fashion if adverse economic conditions should persist.

Now contrast this with something like Park Lawn (TSX:PLC). Having recently climbed past its record-setting price to hit a 52-week high, the funerary and memorial service provider occupies a solid niche in the market, representing one of the most secure industries out there. If investors want a stock that can weather a recession, it’s hard to think of a better choice for the cautious dividend portfolio owner.

The bottom line

Having shed a significant amount over the last couple of weeks of trading, Scotiabank’s bleeding is starting to slow – but the banker’s still not a buy. CIBC is perhaps overly exposed to a domestic market downturn, and as such might prove a risky play in the current economic climate. Investors wishing to get more defensive could consider clean energy stocks, gold, and proven consumer staples.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. Bank of Nova Scotia is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »